Want to Make Money with Real Estate Investments? Consider This.
Many people are tempted to dive into investing in the real estate market. Property has proven to be a good investment over the years. However, there are different ways to invest and knowing the one that fits you best can make all the difference.
When considering real estate investments, you can choose between buying a fixer upper to flip and holding onto a property as a rental unit. There are pros and cons to each option that you should consider:
House Flipping
Most people know a little bit about flipping a house due to popular television shows that showcase the highlights of the process. Studies are finding that flippers are averaging as much money on flips now as they were before the crash of the housing market. It is not uncommon for flippers now to realize a 50% return on investment.
This can make fixing and flipping a house tempting. However, don’t jump in until you see both sides of the story.
Pros
More Affordable – Houses that are purchased to be flipped are usually some of the cheapest houses on the market. Investors look for the houses that are priced low because of the work that needs to be completed.
Quick Turnaround – Investors want to flip houses as quickly as possible. The longer they hold onto the house the more they spend in carrying costs. Therefore, investors look to fix and sell the house as quickly as possible. This means they can realize their return on investment faster as well. And, once you sell the house you no longer have to worry about it.
Cons
The Unexpected – It isn’t always possible to know exactly what kind of work a house needs. Every time you open a wall to make a repair or a cosmetic update you chance uncovering a bigger problem. As soon as you are aware of a problem it becomes your responsibility to fix it. This means that you can easily blow your budget without a choice.
Fees – Every time you buy or sell a house you have transactional fees and closing costs. When you hold onto properties you don’t have to do this as often. The more you buy and sell, the more fees you will pay.
Buying and Renting
The second option for investing in real estate is to purchase property to use as a rental unit. Over the last several years rent has increased in many areas of the country. If you find the right property in the right area this can be a very lucrative way to make money with your real estate investment.
Pros
Monthly Income – While it can be nice to sell a house and make a larger chunk of money all at once, there is a lot to be said for collecting monthly rent. Your tenants pay you monthly, which allows you to collect income month after month.
Appreciation – Holding onto the property allows you to take advantage when the value of the property increases. Real estate has proven to appreciate over time and when you hold onto a property as a rental you have the possibility of making additional money down the road when the property is worth more than when you purchased it. Renting the property before selling it eventually allows you to make money on it twice.
Cons
Management – When you have a rental property you are responsible for the maintenance issues. That means you will either need to be available for your tenants 24 hours a day or a pay a property management company that will do it for you. Not only can this take your time, you will also be financially responsible for any repairs or maintenance that needs to be completed.
Money is on Hold – When your money is tied up in real estate you have no access to use it for anything else. That means if a better investment comes along down the road you might not have the capital you need to make it work.
There are pros and cons to each option. It is up to you to consider the choices and decide which is the best fit for you. Weigh both options carefully before making a decision.